Say you own a business, one you start because it meets your two primary career goals: to earn a good living and to help people. Say you do well: you are able to get a mortgage and build a building for your business, you equip it to keep up with the technical advances in your industry, you hire staff, and you offer some pro bono services to your community.

Things are good.

Then say the government creates a system for buying your product, a system that promises to help all the people you went into business to help.

In order for this system to work, they say seductively, it must be a system for all, enforced and administered by the very government that thought it up. For efficiency's sake, the system must be all-pervasive, so much so that your business must do its business with that same government, or not do any business at all.

Then say that same government decides to set your prices for you.

Now say Medicare.

The Balancing Ax of The Balancing Act

Angela Valvo Collins is such a business owner. Her Suncoast Rehabilitation and Aquatics sells a service: physical therapy for people who have suffered strokes, breaks, sprains and other debilitation. This service is provided mostly to people 65 years and older who depend upon their government insurance, Medicare, to pay for most of their therapy. Consequently, the future for Collins and for thousands others -- owners of business, directors of hospitals, trustees of medical foundations -- is very much in question.

For Collins, "Section 4541(c) of the Balanced Budget Act of 1997 imposed caps [reimbursement limits] of $1500 per beneficiary from all services except those performed in a hospital out-patient department."

Collins runs an independent business, not an outpatient department of a hospital. She explains that $1500 is sufficient when training a recently sprained ankle to support the weight of its owner, but for a stroke? Collins says, "$1500 does not go very far." The result, she says, is that stroke victims do not get the rehabilitation they need. "It is a horrendous impact for the patient."

Large healthcare institutions are affected, too. Lee Memorial Health System Chief Financial Officer Larry Christman says, "Depending on the mix, [the cuts] will represent 1 percent to 5 percent of our gross revenues." He explains that hospitals used to average 4.5 percent, with declines to 3.1 percent and 2.2 percent in 1998 and 1999 respectively. He adds, "It will continue to accumulate."

Cuts in reimbursements are scheduled to take effect in annual doses, he says, so that in an average 300-bed hospital, the impact will be $2 million per year house-wide. "It just continues to get worse," Christman says.

Edward Morton is executive vice president and chief financial officer of NCH Healthcare System, the conglomerate of Naples Community Hospital and its affiliates. He anticipates reduced reimbursement in the range of $4 to $5 million a year, and explains what that means for his institution. "Over the next five years, the range of the Balanced Budget Act, we will have to examine every program, and every avenue of savings will have to be explored." His past operating margins have averaged 3 to 4 percent. Last year, the first of five years of cuts, it dropped to less than 1 percent. "It will result in a reduction in our ability to provide certain services to this community," he says.

Porter Goss is Southwest Florida's member of the US House of Representatives and sits on the Congressional Health Care Task Force. He feels the federal budget is balanced dually by big revenues from a healthy economy and the reductions in government spending ferreted out by the Balanced Budget Act. "To say the Balanced Budget Act is taking muscle out of any of the entitlement acts is just not relevant," he says. "Turn it around: could we spend more on medical entitlements? We could spend zillions.

"I know there is an argument that by cutting some spending that we are taking patient services away." Goss concedes, "That may be happening, but our intent was to go on a healthy diet, and cut the waste, fraud and abuse, and not cut into in the muscle."

The Fraud Squad

NCH's Morton bridles. "Talking about fraud and abuse as major issues is political fodder." He says the healthcare industry has been under close examination long enough to eliminate most major cases of malfeasance and misfeasance. "Any industry should be subject to constructive criticism and undertake on its own volition reviews of its own efficiency," according to Morton. "We are approaching now 20 years of constructive analysis in this industry." He resents the "somewhat capricious application of changes in Medicare reimbursement which have at their core the philosophy that there exists substantial inefficiency in this industry."

Christman, too, is confused by across-the-board cuts that purport to discourage inefficiency and theft. "It doesn't matter how low your costs were, the [reimbursement] is still lowered," he says. "If you were the most efficient, you still are going to get a... cut."

Even so, Goss still feels that savings are to be found here. "There is significant waste and fraud, which we are trying to reduce," he says, "I'm not saying it's all waste. We ran into huge cost redundancy, unnecessary paperwork, fraud. We are seeing a little improvement, but it's still going on."

Suncoast's Collins feels that the Medicare rules themselves are the causes of some of the waste. Before the BBA, she explains, reimbursements were based on her costs as documented in reports that required a CPA to prepare. After the BBA, reimbursements were based on a fee schedule unrelated to costs, but the cost reporting requirement remains. "It is a very complex, 60-page report, produced annually," she says. "It costs $10,000 in my practice." The report is required of thousands of similar businesses.

Additionally, Collins wonders how the government calculates the reimbursement amounts it now pays her type of healthcare business. "A cap is totally inappropriate unless there is research by diagnosis groups and we have rehabilitation dollars for each group," she says. "Until that research is done, a cap is totally arbitrary."

Although that research has been done for skilled nursing and home health providers, it has not been done for outpatient physical and speech therapy. "The $1500 cap got slapped in [to the BBA] at 11:47 p.m." Collins says. "Bang, slam the gavel, and it was done. We didn't have a chance to react."

Goss is sympathetic. "I agree," he says. "I have a long list of those kind of legitimate complaints. We are in an experimental period, trying to tweak the marketplace."

Forced Specialization

In the minds of many healthcare professionals, the effect of Medicare reductions is becoming a practical, Dickensian reality. If the experiment is to determine if reducing insurance payments can control